Types of Decisions

Which of the following is an example of a family decision?

The youngest non-working sibling chooses to pursue a data

science course

✓ Correct

Role of Government in a Mixed Economic System

A mixed economic system believes that a free market, which ensures
efficiencies, must exist with government support policies to ________ and
________.

(More than one option might be correct)

Stabilise the poverty rate

✓ Correct
Feedback:
Correct; the government aims to promote policies that stabilise and lower
poverty rates to increase welfare.

Achieve low unemployment

✓ Correct

Economic Questions
The economic problem of ‘what to produce’ relates explicitly to _____.

Allocation of resources to the production of goods and services✓

Correct

Branches of Economics
Which of the following decisions fall under the purview of
macroeconomics?

(Note: More than one option may be correct.)

Increasing import tariffs to reduce imports

✓ Correct
The impact of higher national saving on economic growth

✓ Correct
The Rationality Assumption
The rationality assumption implies that an individual does not act unless ________.

The action produces positive net marginal benefits✓ Correct

Opportunity Cost
You cancelled your plan with friends to continue studying this course. This
concept of giving up an alternative when you make an economic choice is
called ________.

Opportunity cost

✓ Correct
Feedback:
Correct. Opportunity cost refers to giving up an alternative when you
make an economic choice. For example, when you decided to study this
course today, you gave up the fun hours with friends. So, the opportunity
cost of studying is recreational hours with friends.

Positive Economics
Which of the following is NOT a component of positive economics?

Opinions ✓ Correct

Different Schools of Economic Thought

The consumer’s perception of a product’s value is the driving factor in its
price. This statement is relevant to which of the following schools of
economic thought?

Neoclassical

✓ Correct
Feedback:
Correct. Neoclassical economists believe that the consumer’s perception
of a product’s value is the driving factor in its price.

Law of demand
Which of the following will not follow the law of demand?
(More than one option might be correct)

Tesla car

✓ Correct
Feedback:
Correct. A Tesla car is a Veblen good because taste and preferences
overcome the price factor.

Millet

✓ Correct
Feedback:
Correct. Millet is a Giffen good because the poorer families will increase
demand for millet if the price of millet increases because they cannot
afford higher quality grains, and purchasing power overrides the price
factor.

Demand Curve
Which of the following statements for the inverse demand curve is true?

It follows the law of demand.

✓ Correct
Feedback:
Correct; the inverse demand curve shown above represents an inverse
relationship between the price of the commodity and the quantity
demanded.

Price of Related Goods on the Demand

Suppose the price of petrol in the economy is constantly increasing and is
expected to rise further in the coming months. What will be the impact of
this price on the demand for petrol cars?

The demand curve will shift to the left, and the quantity
demanded will decrease. ✓ Correct

Elasticity of Demand
If the price of sugar falls, leading to an increase in total expenditure on
sugar, then the demand of sugar is ____________________.

Elastic

✓ Correct
Feedback:
Correct; a fall in price will lead to an increase in total expenditure only
when the increase in quantity demanded is higher than the fall in price,
implying an elastic demand curve.

Demand Forecasting
Which of the following factors impacted the forecasted demand of the
sanitiser market with the rise of COVID-19 cases? (More than one answer
is correct)

Change in the consumer's outlook

✓ Correct
Feedback:
Correct, when the global economy was hit by COVID-19, it changed
consumer's outlook towards sanitisers as it was viewed as the only shield
against the disease. Hence, consumer's perception changed in the favour
of sanitiser market leading to an unexpected rise in sanitiser demand
which was not used in demand forecasting leading to excess demand and
rise in the price of sanitisers.

Type of good

✓ Correct
Feedback:
Correct, sanitiser is a medical commodity that is considered necessary in
times of pandemic. Hence, COVID-19 impacted the actual demand for
sanitiser, creating a huge gap between the forecasted demand and the
actual demand.

Concept of Supply
What does the supply of a good refer to in economics?

The total amount of goods offered for sale at a price ✓ Correct

Impact of Changes in Factors on Supply

Which of the following factors will not lead to a current increase in the
supply of cars in India?

The expectation of the sale price of cars to increase three months

later Correct

Cross-Price Elasticity of Demand

Suppose you have two products, product A and product B. A 50% increase
in the price of product A leads to a 25% decrease in the quantity
demanded of product B. Calculate the cross-price elasticity of demand of
product B.

-0.5

✓ Correct
Feedback:
Correct. Using the formula for cross-price elasticity of demand, which is:
Percentage change in the quantity of product B/Percentage change in the
price of product A= -0.25/0.50 = -0.50.

Impact of a Shift in Supply on Equilibrium Price and Quantity

If the supply curve of a product moves to the right, what will happen to the equilibrium
quantity and price in the market, assuming that the demand remains constant?

The quantity increases and the price decreases.

✓ Correct
Feedback:
Correct; if the supply curve shifts to the right, keeping demand constant,
supply is more than demand, and thus, price starts decreasing, leading to
an increase in quantity demanded.

Impact of a Shift in The Demand Curve

Suppose the previous shift in supply did not happen, i.e., the supply curve
was held constant. Now, you notice an increase in both the market price
and the quantity of the product. What change in the demand curve could
have led to this?

The demand curve shifted to the right.

✓ Correct
Feedback:
Correct; if the demand curve shifts to the right with supply held constant,
then there is an increase in both the equilibrium quantity and the price.

Government Intervention on the Supply of Alcohol

Suppose the government sets a maximum price on alcohol that is lower than the equilibrium
price. Which of the following will be a possible outcome in this case?
(Note: More than one option may be selected.)
Shortage in supply

✓ Correct
Feedback:
Correct. This is a possible outcome. When the government sets a
maximum price that is lower than the equilibrium price, shortage occurs.

Possible black market

✓ Correct
Feedback:
Correct. This is also a possible outcome. A shortage in supply with an
increase in demand may lead to the creation of black markets.

The Types of Cost

A cost that changes the total amount with the change in the level of
production is a/an ___________________.

Variable cost

✓ Correct
Feedback:
Correct; the variable cost is the cost that changes with the level of
production.

The Shape of Different Costs

Which of the following cost curves looks like a rectangular hyperbola?

Average fixed cost (AFC)

✓ Correct
Feedback:
Correct. AFC is diminishing because it decreases with increasing
production, and the area under AFC that represents the total cost is
constant at all points on the curve.
The Different Concepts Related to Physical
Production
What is the marginal product of 8th labour according to the table given
below:

Units of Production Production

0 0
1 100
2 150
3 210
4 280
5 340
6 380
7 400
8 400
9 380
10 340

✓ Correct
Feedback:
Correct; as the 8th unit of labour is employed, the total product remains
constant at 400; hence, no output is added by the 8th labour.

The Shape of the Total Revenue (TR) Curve

If the price of a product is constant, which of the following represents the
shape of the TR curve?

Upward-sloping straight line

✓ Correct
Feedback:
Correct; since TR = Output * Price, and the price is constant and output is
increasing, TR will be upward sloping with a constant slope equal to the
price of the product.
TR-TC and MR-MC Approaches to the Break-Even
Point
Which of the two points represents the break-even point in the following
graph and why?

L2

✓ Correct
Feedback:
Correct; for the break-even point, two conditions need to be satisfied: a)
MR = MC, and b) MC is rising.

Examine Profit Analysis

What should a firm do if its marginal revenue (MR) is lesser than the
average total cost (ATC) but greater than the average variable cost (AVC)?

The firm should continue production as long as MR is greater than

AVC.

✓ Correct
Feedback:
Correct; for perfect competition, you know that firms will continue to
produce in the short run until a point where marginal revenue is equal to
average variable cost.
The Factors of Production
Entrepreneurs are the factors of production who are __________.

Individuals who are willing to take risks to bring other factors of

production together

✓ Correct
Feedback:
Correct; entrepreneurs are individuals who bring all factors of production,
i.e., land, labour and capital, to produce goods and services.

Diseconomies of Scale
Which of the following can cause diseconomies of scale?
(Note: More than one option may be selected.)
Increased communication as firms grow in size

✓ Correct
Feedback:
Correct; as firms grow in size, the communication channel spreads across
multiple points of contact, causing delayed response time and office
politics, thus leading to diseconomies of scale.

Increased inefficiency due to shared accountability by a large

number of employees

✓ Correct
Feedback:
Correct; as firms grow in size, there is shared accountability that may lead
to the free-rider problem by some employees, leading to reduced
efficiency and diseconomies of scale.

Scope of Microeconomics
Which of the following is an example of a microeconomic question?

What new type of smartphone will increase the number of buyers?

✓ Correct
Feedback:
This is a question of what motivates a group of buyers to buy a
smartphone based on the characteristics of the phone. Thus, this is a
microeconomic question.
Normative Statement
A normative statement is one that ________________.

Is based on value judgments

✓ Correct
Feedback:
Normative statements take a position on what ought to be based on
certain principles and involve value judgments.

Market Equilibrium
The demand for a Reynolds pen is given by Qd = 100 – P, and its supply is
given by Qs = 4P. The equilibrium price and quantity are ______________,
respectively.

₹20 and 80 pens

✓ Correct
Feedback:

At equilibrium, demand = supply.

100 - P = 4P => 100 = 5P => P = 100/5 = ₹20

=> Qd = 100 - 20 = 80 pens

Binding Price Floor

Which of the following results from a binding price floor?

Excess supply

✓ Correct
Feedback:
The price floor is above the equilibrium price, which implies that more
suppliers are willing to sell at a higher price floor than there are
consumers who are willing to buy at that higher price, leading to excess
supply.

Shifts in Demand Curve

The price of good A goes up. As a result, the demand curve for good B
shifts to the right. What can we infer from this?
Goods A and B are substitutes.

✓ Correct
Feedback:
A rise in the price of A resulting in a rightward shift of the demand curve
for B means that consumers are moving from A to B. This is only possible
if A and B are substitutes.

The Average Product and the Marginal Product

Assume that the average product for six workers is 15. Which of the
following statements is true if the marginal product of the seventh worker
is 18?

The average product is rising.

✓ Correct
Feedback:
In this case, the marginal product is greater than the average product,
and we know that the average product rises when the marginal product is
greater than the average product.

The Types of Cost

An employer has dedicated considerable resources to the training of an
employee, but after a year, he finds the employee’s performance not up
to the mark. He is thinking of letting the employee go but is hesitant
because of the cost he has incurred in the training. What will your advice
to the employer be?

Fire the employee because the investment made in him is

irrelevant to the decision to retain or fire him

✓ Correct
Feedback:
The investment in an employee is a sunk cost and should not matter.

Profit-maximising Level of Output and Price

For a soap manufacturer operating in a perfectly competitive market, total
revenue is equal to Rs 150 and the marginal revenue is equal to Rs. 30.
The market equilibrium price and quantity for this manufacturer is equal
to
Rs. 30 and 5 units

✓ Correct
Feedback:
For a perfectly competitive market, price is equal to MR, hence equilibrium
price is equal to Rs. 30 and Total revenue = Price * Quantity => 150=
30*Q => Q = 150/30 = 5

Concept of Market
Which of the following features is not relevant to the concept of the
market?

Bank rates

✓ Correct
Feedback:
Correct. Bank rates are not a relevant feature of the concept of the
market. A market mainly comprises buyers, sellers, commodity, price and
area; offline or online.

Perfect Competition
Which of the following is the best example of a perfectly competitive
market?

Farming

✓ Correct
Feedback:
Correct. Farming products are homogeneous and produced by multiple
sellers. This market is characterised by free entry and exit, with farmers
being the price-takers.

Profit Analysis in Perfect Competition

Which of the following is a short-run decision of a perfectly competitive
firm?

What output to produce to maximise profit?

✓ Correct
Feedback:
Correct. In a competitive market, a firm has no bearing on the price, so to
maximise profits, a firm can only decide its production level.
Patents and Licences in Monopoly market
How do patents and licences support monopolies?

By creating barriers for other firms to enter the market

✓ Correct
Feedback:
Correct, patents and licences help existing firms retain their monopoly
status.

Monopoly Model
A market in which it is most efficient for a single company to cater to the
entire demand is called _______.

Natural monopoly

✓ Correct
Feedback:
Correct. Natural monopolies occur when only one company can take
advantage of high barriers of investment and can most efficiently produce
at a large scale with high investment and economies of scale. An example
of a natural monopoly that you learnt about is the water supply by local
municipal bodies.

Social Cost of Monopoly

Monopoly equilibrium is socially inefficient because:

Price > Marginal Cost

✓ Correct
Feedback:
Correct, price greater than marginal cost implies that consumers willing to
pay marginal cost have to pay a higher price and hence, will not buy the
product reducing the total output in the market.

Price Discrimination
Flight ticket prices fluctuate based on travel time (time of day, day of the
week, time of the year). Also, different airlines charge different prices for
the same seat. Prices fluctuate between companies as well as within each
company. Which of the following is not a considered requirement for price
discrimination by the airline industry?

Perfect substitutes

✓ Correct
Feedback:
Correct, if products are perfect substitutes, then price differentiation does
not work. For example, if a consumer is not able to differentiate between
the comfort and travel time of the two airlines, they will prefer the one
with a lower price. This will ensure that the firms charge same price for
perfect substitutes. The reason why Vistara charges a higher price
compared to Spicejet is that although both will take you from point A to
point B, the comfort and services ensure that the experience is different
and hence, they are able to charge differently.

Monopolistic Competition
Even though a key feature of monopolistic competition is that the firm involved is a price-
setter rather than a price-taker, its ability to set prices is undermined mainly because
_______.

The demand for its products is highly elastic.

✓ Correct
Feedback:
Correct, the price elasticity of demand for a product in monopolistic
competition is very high. In other words, demand is quite sensitive to the
price change, as there are several close substitutes in the market. For
example, if the price of your usual brand of floor cleaner is increased by,
say, 25%, then you would not hesitate to switch to an alternative brand.

Importance of Advertising
Advertising is used by a monopolistic competitive market because
_________.

It makes perceived demand by firms more inelastic.

✓ Correct
Feedback:
Correct, advertising influences the consumer’s perception, making
demand inelastic and allowing firms to gain a larger market share.
Perceived demand relates to the change in demand when firms change
the prices, but the rival’s price remains constant. For example, when Surf
Excel advertises a discount of ₹10, consumers perceive Surf Excel to be
cheaper, making the demand inelastic.

Collusion in Oligopoly Market

Although oligopolies would like to act like monopolies, self-interest hinders
them from maintaining the monopolistic outcome by maximising joint
profits. Which of the following could be a reason for this?
Each oligopolist is tempted to increase production and capture a
large share of the market.

✓ Correct
Feedback:
Correct, there is some tension between cooperation and self-interest
among oligopolists. When the firms jointly try to maintain a higher price in
order to maximise profits, each member is tempted to increase production
in order to capture a large share of the market.

CVP Analysis
For which of the following does the CVP analysis assume linear functions?

Contribution margin per unit

✓ Correct
Feedback:
Correct. CM per unit is a straight line.

Sales Maximisation Principle

The divorce of ownership from control refers to the ___________.

Delegation of decision-making of a firm by owners to managers

✓ Correct
Feedback:
Correct. The divorce of ownership refers to shareholders who are owners
of the firm delegating decision-making tasks to managers.

Isoquant
The slope of isoquant measures __________.

The marginal rate of technical substitution between labour and

capital

✓ Correct

Shape of Isoquant
An L-shaped isoquant implies that labour and capital are ________.

Perfect complements

✓ Correct
Feedback:
Correct, if labour and capital are perfect complements then the isoquant
will be L-shaped.

Slope of Isoquant Curve

The slope of isoquant measures ____________.

The relative price of factors of production

✓ Correct
Feedback:
Correct, an isocost is the locus of a combination of labour and capital that has the same total
cost, and hence, the slope of isocost measures the relative prices of factor inputs.

Long-run Equilibrium
The combination of inputs is optimal ___________. (There may be more than one correct
answer)

At points of tangency between the isoquant curve and the isocost

line

✓ Correct
Feedback:
Correct, the combination of inputs is optimal at the least-cost combination
of inputs for a given output level which we get at tangency of isoquant
curve and isocost line.

If the marginal rate of technical substitution is equal to the

relative price of the factor inputs at that combination of labour
and capital

✓ Correct
Feedback:
Correct, a tangency of the isocost line and the isoquant curve implies that
their slopes are the same, and hence, MRTS = w/r

Expanding Production Scale

_______ is defined as the locus or joining of the points of tangency between
the isoquants and the isocost lines.

Expansion path

✓ Correct
Feedback:
Correct, the expansion path is the locus or joining of tangency points
between the isoquants and the isocost lines.

Fundamentals of Macroeconomics
Identify the correct statement from the options given below.

Macroeconomics informs you about the overall economic health of

a country.

✓ Correct
Feedback:
Correct, Macroeconomics looks at the economy at a ‘macro’ level and
hence helps you understand the economy at the country level.

Economic Injection
Which of the following is NOT an example of an economic injection?

You import an iPad from the US.

✓ Correct
Feedback:
Correct. When you buy an imported product, it is considered a leakage
from the economy, as that money is going out of the economy.

Gross Domestic Product

What does the Gross Domestic Product measure?

The size of the total production in an economy

✓ Correct
Feedback:
Correct. The formula for calculating the GDP is GDP = C + I + G + (X-M),
which is a measurement of the total production in an economy.

Gross National Product

Which value does the Gross National Product (GNP) of a country indicate?

It is the total value of all goods and services produced in a country plus the net
income from abroad.

✓ Correct
Feedback:
Correct. The formula for calculating the Gross National Product is GNP = GDP + income
from abroad.

Income Approach
Which of the following is/are added in the Income approach?

(More than one option might be correct)

Households earning

✓ Correct
Feedback:
Correct. This is one of the earnings that is included in the Income
approach.

Goods and Services Tax (GST)

✓ Correct
Feedback:
Correct. Taxes are government earnings and hence, included in the
Income approach.

Productivity
The discovery of new iron ore reserves in the country would contribute to
its ______.

Natural resources

✓ Correct
Feedback:
Correct. Iron ore is a natural resource, so its discovery will add to the
country’s natural resources.

Recessions
Suppose several top economists of a country are meeting to discuss an
economic recession in the country. Based on your understanding of
economic recessions, which of the following is the best strategy to
promote economic growth?

Stimulating aggregate demand in the economy

✓ Correct
Feedback:
Correct, an increase in aggregate demand will lead to an increase in
economic activity, which will help the country overcome the recession.
Laissez Faire Policy
What is the driving principle behind the laissez-faire economic theory?

Leave things alone as they are, and let the markets operate
without interference.

✓ Correct
Feedback:
Correct The French phrase ‘laissez-faire’ means ‘to leave alone’, and the
key principle behind this theory is that businesses perform best when they
are left alone or not interfered with.

Classical and Keynesian Theory

Identify and select the correct statement from below.

The Classical theory focuses on the long-term view, whereas the

Keynesian theory focuses on the short-term view.

✓ Correct
Feedback:
Correct. The classical theory argues that markets are self-correcting in
nature in the long run, while the Keynesian theory argues that the
government can rescue economies by injecting money that can be used to
quickly correct short-term fluctuations in an economy.

Consumption Function
Suppose the government of Scandia has started supplying essential food
items to its low-income citizens. In this case, what is the government
trying to influence?

The government is trying to decrease the autonomous spending

of households.

✓ Correct
Feedback:
By supplying essential food items to these citizens, the government can
help reduce their fixed or autonomous spending. This frees up their
income, which they can then spend on other items and thus increase the
flow of money in the economy, thereby increasing economic activity.

Application of Consumption Function

Taylor, who is a citizen of Scandia, works as a freelance graphic designer.
Over the past few months, his earnings have taken a hit, as the pandemic
has spread and hurt business in his country. During such a time, which of
the following steps is Taylor likely to take? (Note: More than one option
may be correct.)

He will focus on increasing his savings.

✓ Correct
Feedback:
Correct. As Taylor's earnings are hurt by the pandemic, he will focus on
saving more money because he will be concerned about the uncertainty of
the situation and his earnings in the future.

He will focus on decreasing his spending.

✓ Correct
Feedback:
Correct. As Taylor's earnings are hurt by the pandemic, he will focus on
spending less money.

Interest Rates and Money Supply

Identify the correct statement from below.

The rate of interest decreases as the money supply increases.

✓ Correct
Feedback:
Correct As the money supply in an economy increases, it becomes
cheaper to borrow money. So, the rate of interest decreases when the
money supply goes up.

Interest Rates and Money Borrowings

Identify the correct statement from be

When the interest rate increases, borrowing money decreases.

✓ Correct
Feedback:
Correct. As interest rates increase, borrowing money becomes more
expensive, so borrowing decreases.

Aggregate Demand
Suppose the demand for goods and services has suddenly increased in
Scandia owing to a population explosion over the past decade. How would
this increase be represented on the aggregate demand (AD) curve?

The curve will shift to the right.

✓ Correct
Feedback:
Correct. An increase in aggregate demand will shift the curve to the right,
that is, towards higher economic growth.

IS-LM Model
Which of the following is likely the reason for an increase in economic
activity?

Lower interest rates

✓ Correct
Feedback:
Correct. When interest rates are low, people would prefer to invest or
spend their money, as lower interest rates would not yield good returns.
This will lead to higher economic activity.

Types of Inflation
Sally, a resident of Scandia, goes to a salon for a haircut. The haircut,
which usually costs $50, now costs $40. Sally is confused and curious to
know how she could get the haircut at a lower price, despite no discounts
being offered at the salon. She also notices that the prices of all the goods
and services in Scandia has decreased. Which of the following situations is
taking place in the economy?

Deflation

✓ Correct
Feedback:
Correct. Deflation occurs when the prices of goods and services in an
economy fall.

Types of Unemployment
Which of the following can be considered to be cases of unemployment? (Note: More than
one answer is correct)

Mohit, who loves fashion and has a bachelor's degree in Science,

cannot apply for the job of a fashion editor in a leading magazine
as he lacks the skills needed for the job.

✓ Correct
Feedback:
Correct. Mohit's case is that of structural unemployment.

There is a decrease in campus placements in your college owing

to recessionary pressure.

✓ Correct
Feedback:
Correct. The decrease in placements due to the slowdown in demand is a
case of cyclical unemployment.

Ritika has left her job as a business consultant and is looking for a
new job.

✓ Correct
Feedback:
Correct. Ritika's case is that of frictional unemployment.

Objective of Monetary Policy

What is the objective of quantitative easing?

To increase the money supply in the economy.

✓ Correct
Feedback:
Correct. Quantitative easing refers to increasing the money supply in the
economy.

Monetary Policy Instrument

The main objective of monetary policy is to influence spending on goods
and services. What does monetary policy directly influence in order to
achieve this objective?

Interest rate

✓ Correct
Feedback:
Correct. Interest rates directly affect household spending decisions,
especially in terms of how much they spend and how much they save.
Hence, central banks regulate or influence interest rates to achieve their
objectives.

Fiscal Policy Decisions

Which of the following is an example of a fiscal policy decision?

(More than one option might be correct)

An increase in income tax rates

✓ Correct
Feedback:
Correct. Fiscal policy decisions include changing tax rates.

An increase in unemployment benefits

✓ Correct
Feedback:
Correct. Fiscal policy decisions include changing transfer payments, and
unemployment benefits is a type of transfer payment.

Regulator of Fiscal Policy in India

Fiscal policy in India is formulated by _____.

Finance Ministry

✓ Correct
Feedback:
Correct. The Finance Ministry is involved in creating fiscal policy in India.

Examine the Working of a Fiscal Multiplier

During a period of recession, the government of Scandia decides to give
$1,000 to each household in the economy. Assuming that there are 10,000
households in Scandia, the government has spent $10 million. It hopes
that people will use this money to start buying more things, which will
stimulate demand and increase the economic activity in the country.
However, people instead decide to save all this money, fearing that the
economic situation might get worse in the future. What has happened in
this situation?

The input has not seen a multiplier effect.

✓ Correct
Feedback:
Correct. In this case, as the households chose to save all the money
instead of spending it on investments or buying things and stimulating
demand, the investment has not multiplied or boosted the economy.

Exchange Rate
The nominal exchange rate for the Indian rupee can be defined as ______.

The number of units of foreign currency required to buy one unit of the Indian
rupee

✓ Correct
Feedback:
Correct. The nominal exchange rate refers to the units of foreign currency, such as the US
dollar, needed to buy one rupee.

Currency Appreciation
If the Indian rupee appreciates, what will be its impact?

It will allow you to buy more foreign goods for the same amount
of money.

✓ Correct
Feedback:
Correct. When a currency appreciates, its value increases, reducing the
value of foreign currency. Hence, more foreign goods can be bought with
the same amount of money.

Purchasing Power Parity Theory

According to the Purchasing Power Parity theory, the value of a currency

should remain constant in terms of the amount of ______________ it can
buy in different countries.

Goods and services

✓ Correct
Feedback:
Correct. PPP refers to the commodity market that includes goods and
services.

Economic Data
Suppose you are a business analyst and are working on a critical research
project. For this project, you have to collect some amount of economic
data and ensure that your data is reliable or it could have serious
consequences. Which of the following steps would you take to ensure that
the data you collect is reliable?

Go to government and government-related websites to collect the

data.

✓ Correct
Feedback:
Correct. Government websites are reliable sources of economic data.
Foreign Trade
What does comparative advantage mean in the context of foreign trade?
(Note: More than one option may be correct.)

It allows countries to import at lower prices

✓ Correct
Feedback:
Correct. Countries that do not specialise in something and would need to
spend more on producing it domestically can import the same product at
cheaper rates.

It allows countries to export at higher prices.

✓ Correct
Feedback:
Correct. Comparative advantage allows countries that specialise in
something to sell it in the international markets for higher prices.

Comparative Advantage in Foreign Trade

Brazil produces tea in high quantities and has a comparative advantage in
it. Now, imagine that the demand for Brazilian tea rises by a significant
level in the global markets, and Brazilian tea producers start exporting tea
in extremely high quantities in order to gain maximum benefits. What will
be the impact of this on the Brazilian tea consumers?

Tea in the domestic market will become more expensive.

✓ Correct
Feedback:
Correct. As domestic tea consumers compete with global buyers, the price
of tea in Brazil will increase.

Foreign Direct Investment

Which of the following is an example of foreign direct investment (FDI

An American fashion apparel company opening new stores across

the UK

✓ Correct
Feedback:
Correct. This is an example of FDI, as the company is directly investing in
setting up stores in the UK.
Foreign Direct Investment Impact on Economy
If a country receives high foreign investment in the luxury market on a
steady basis, what does it indicate about its economy?

(More than one option might be correct)

Good economic health

✓ Correct
Feedback:
Correct. If foreign companies are investing in a country's luxury goods
sectors, it indicates that high-priced products are selling well there and
that the domestic market is strong. This indicates good economic health.

Political stability

✓ Correct
Feedback:
Correct. A country receiving high foreign investment in the luxury market
indicates a politically stable economy.

Trade Barriers
Which of the following is an example of an import tariff in an Indian
context?

The tax on electronic goods imported from Shanghai

✓ Correct
Feedback:
Correct, a tariff is imposed on imported goods. So, this is an example of the tariff.

Type of Trade Barriers

Zaldia produces rice abundantly. It has been exporting rice to its
neighbouring countries for many years now. However, last year, Scandia
too entered the rice market and has been selling rice in the global markets
and to Zaldia’s neighbouring countries at very low prices.

How should Zaldia’s rice producers react to this?

Zaldia’s rice producers will need to reduce their prices through

subsidies.

✓ Correct
Feedback:
Correct. Zaldia’s rice producers will need to reduce their prices in order to
compete in the market and retain their market share

Balance of Payments
What is the basic accounting principle behind balancing the Balance of
Payments account?

It is based on the basic double-entry principle of accounting.

✓ Correct
Feedback:
Correct. The Balance of Payments functions on the basic accounting
principle that every credit appearing in the current account has a
corresponding debit in the capital account.

Balance of Payments
Which of the following would not appear under the current account in the
Balance of Payments? (Note: More than one option may be correct.)

Capital payments

✓ Correct
Feedback:
Correct. These will reflect under the capital account, not the current account.

Foreign exchange flows

✓ Correct
Feedback:
Correct. These will reflect under the capital account and not the current account.

Social Cost of Monopoly

The monopolist that maximises profit ________.

Is inefficient because the selling price is above the marginal cost

✓ Correct
Feedback:
Correct. In perfect competition, the condition p = MC is met, whereas, in
monopoly, it is not. So, p > MC, in this case, is inefficient as it results in
underproduction from society’s point of view.

Price Discrimination
A doctor charges two different prices for medical services, and the price
level depends on the patient’s income such that wealthy patients are
charged more than poorer ones. This pricing scheme represents a form of
______.

Third-degree price discrimination

✓ Correct
Feedback:
Correct. The wealthy patients are less price-sensitive and may therefore
be open to paying higher prices. The poorer ones are more price-sensitive
and will therefore display more substitutability.

Perfect Competition
Suppose your firm has a U-shaped average variable cost (AVC) curve, and it operates in a
perfectly competitive market. If you produce goods at the point where the product price
(marginal revenue) equals average variable cost (on the upward-sloping portion of the AVC
curve), then your output will ______.

Exceed the profit-maximising level of output

✓ Correct
Feedback:
Correct. Profit maximisation means the marginal revenue (MR) is equal to
the marginal cost(MC). And, MC is greater than AVC when AVC is rising.

Fundamentals of Macroeconomics
Macroeconomics seeks to understand ________.

Economic growth, business cycles and unemployment

✓ Correct
Feedback:
Correct. Economic growth, business cycles and unemployment are the
concerns of the economy

Components of Gross Domestic Product

Which of the following is counted in the Indian GDP?

Your parents spend ₹ 70,000 on buying goods and services during

the year.

✓ Correct
Feedback:
Correct. SPending is included in the consumption component of the GDP.

Types of Unemployment
Suppose your friend was working as an engineer in a company that
produced CD players. Soon, the company decided to produce pen drives,
and your friend lost his job because the company felt that he did not have
the expertise in developing pen drives. Your friend keeps looking for new
jobs but has to upskill. This type of situation is called ______.

Being structurally unemployed

✓ Correct
Feedback:
Correct. This is a case of structural unemployment. Your friend needs to
acquire expertise in a different area to be employed again because his
expertise has become obsolete.

Government Policy
Which type of policy do the governments adopt to increase the aggregate
demand in the goods market?

Expansionary fiscal policy

✓ Correct
Feedback:
Correct. Expansionary fiscal policies involve measures to increase the
aggregate demand in the economy through increased government
spending or decreased taxes.

Trade Policy
What is a retaliatory trade policy?

It is a trade policy designed to counter the aggressive trade policy

of another country.

✓ Correct
Feedback:
Correct. A retaliatory trade policy focuses on ensuring that a country's
economy does not suffer because of another country's aggressive trade
policies.

Question 1
What does price elasticity of demand measure?

The responsiveness of the quantity demanded to changes in

price.

✓ Correct
Feedback:
The elasticity of price measures the percentage change in quantity
demanded to the percentage change in the price of the commodity.

Question 2
Which of the following aspects should be analysed before making a
decision?

Its qualitative aspects

Its quantitative aspects

Both a & b

✓ Correct
Feedback:
Decision-makers need to analyse both quantitative and qualitative aspects
before making any analytical decisions.

Question 3
When the slope of the demand curve is- (1), the demand curve is

Downward sloping
✓ Correct
Feedback:
If the value of the slope of the demand curve is -1, then it implies that an
increase in the commodity price leads to a proportionate decrease in the
quantity demanded of that commodity and vice versa.

Question 4
In which market structure in which all firms sells similar or homogenous
products?

Perfect Competition

✓ Correct
Feedback:
In the perfect competition market, a large number of buyers and sellers
sell homogenous products.

Question 5
Which of the following feature is correct for a perfectly competitive market
structure?

Highly competitive and firms find it impossible to earn an

economic profit in the long run.

✓ Correct
Feedback:
In a perfectly competitive market, free entry and exit of firms and
homogeneity of products do not allow firms to earn economic profit in the
long run.

Question 6
There are a variety of goods for consumers in ______ market structure.

Oligopoly

✓ Correct
Feedback:
In an oligopoly market, there are a few sellers but they sell heterogeneous
products ensuring options for the customers to choose from. Example: the
auto industry.

Question 7
Break even capacity ____________?
Break-even sales in rupees/Normal sales in rupees

✓ Correct
Feedback:
Break-even capacity is the ratio of the nominal value of break-even sales
to the nominal value of normal sales.

Question 8
A company's telephone bill consisting of a Rs. 200 monthly base amount,
plus long-distance charges, would be classified as a?

Mixed Cost

✓ Correct
Feedback:
The given cost structure is a mix of fixed cost (Rs. 200) plus variable cost
(long-distance charges).

Question 9
Contribution margin is also known as____________?

Marginal income

✓ Correct
Feedback:
The contribution margin is equal to the difference between the per unit
selling cost and the per unit variable cost and hence, also termed as
marginal income.

Question 10
An example of a semi variable cost would be?

Electricity costs

✓ Correct
Feedback:
Electricity is charged fixed up to a certain level of unit consumption and
then you need to pay extra for every unit consumed on a per unit basis.

Question 11
A LM curve is ___________?
Upward sloping

✓ Correct
Feedback:
Higher-income or economic growth results in higher demand for money,
thus resulting in higher interest rates to maintain money market
equilibrium. Therefore, LM curve is upward sloping.

Question 12
When a firm practices price discrimination at the international level, it is
known as

Dumping

✓ Correct
Feedback:
Dumping is the practice when a country or company exports a product at
a price that is lower in the foreign importing market than the price in the
exporter's domestic market.

Question 13
In the ………all factors or inputs become variable and no input is fixed.

Long run

✓ Correct
Feedback:
All inputs become variable in the long run.

Question 14
The IS curve represents _____________ market equilibrium

Goods

✓ Correct
Feedback:
IS curve indicates equality of investment and saving and hence, it
represents equilibrium in the goods market.

Question 15
The LM curve represents _______________ market equilibrium.

Money
✓ Correct
Feedback:
LM curve represents a relationship between money supply and money
demand and hence, captures the equilibrium in the money market.

Question 16
The IS-LM model was given by _______ ?

Hicks & Hansen

✓ Correct
Question 17
Which of the following is NOT a leakage from the circular flow of income
and expenditure?

Government purchases

✓ Correct
Feedback:
Government purchases are bought with payments that are used to
produce goods and services in the economy and therefore, it is an
injection and not leakage.

Question 18
As the domestic currency appreciates, the exports ___ and imports ____.

falls, rises

✓ Correct
Feedback:
Appreciation of domestic currency makes domestic goods expensive with
respect to foreign goods. Hence, exports fall and imports rise.

Question 19
The demand curve for good 'x' shifts to right when

Income of the consumer rises when good 'x' is a normal good

✓ Correct
Feedback:
When income rises, for the same level of price, quantity demanded
increases for the normal good and therefore, the demand curve shifts to
the right.

Question 20
The law of supply states that:

As prices rise, quantity supplied rises

✓ Correct
Feedback:
The law of supply captures the positive relationship between the quantity
supplied of the commodity and the price of the commodity.

Question 21
"In a perfectly competitive market, how is price adjusted?
"
The forces of supply and demand dictate a market price firms use

✓ Correct
Feedback:
In a perfectly competitive market, the invisible hand of demand and
supply dictate the market price.

Question 22
Which one of the following is a determinant of price elasticity of demand?

The time period

✓ Correct
Feedback:
Demand for certain commodities like good quality grain is inelastic in the
short run because it is a necessary commodity but can become elastic in
the long run when consumers might develop taste for coarse grains if the
price of good quality grain continues to rise.

Question 23
If the Central Bank wanted to fight a recession, which monetary policy tool
would it employ first?

Buying government bonds

✓ Correct
Feedback:
In case of recession, Central Bank needs to boost aggregate demand and hence, needs to
reduce interest rates by increasing supply which it can achieve by buying government bonds.

Question 24
Which of the following is a basic premise for Classical economists?

The economy is self-correcting to full employment

✓ Correct
Feedback:
Classical economists believe in the idea of laissez-faire which means that
free markets are self-correcting.

Question 25
A rise in FDI in a country would result in

Rise in employment

✓ Correct
Feedback:
An increase in FDI implies an increase in the level of production which in
turn will increase the level of employment in the economy.